DTN special correspondent Elizabeth Williams reported this week that, “Cautious — that’s what the farmland brokers and rural appraisers termed their mood last week at the spring meeting of the Iowa Realtors Land Institute. It may look like business as usual as planting begins, but beneath the surface, financial stress is building in farm country, Iowa Concern Hotline director Margaret Van Ginkel with Iowa State Extension would add.

“The hotline, established in 1985 during the farm financial crisis, has seen an increase in call volume this spring. ‘Questions concerning tax consequences of selling machinery or land, what if they stop making payments on machinery, worries about whether a farm operation can support two or three generations. The vulnerability is there,’ Van Ginkel said.”

The DTN article explained that, “Iowa is a bellwether state for agricultural stress, given its rapid run-up in farm incomes, land values and cash rents during corn’s 2008-12 glory years. Some lenders think the commodity fall will be harder here. One sign is that Land Institute members think the state’s farmland prices tumbled 5% on average over the last six months, according to its March 1 survey. Since 2015, Iowa land values have fallen 8.7% across the state with top-quality cropland decreasing from $9,516 per acre to $9,146, the survey found.”

Ms. Williams also noted that, “Cash rents have softened a little, Iowa farm managers and rural appraisers reported at their statewide meeting, but rents are still strong in some areas. Waverly banker Willemssen said cash rents in northeast Iowa are still in the $300- to $400-per-acre range.”

Meanwhile, a news release from North Dakota State University this week stated that, “North Dakota land values declined for the second consecutive year in 2015. This follows an 11-year period (2003 to 2014) in which cropland values averaged an annual increase of 15 percent, the strongest sustained run-up in cropland values in the past 100 years.”

The release added that, “Based on the survey, North Dakota average cropland values declined about 4 percent during 2015. Swenson noted that a report by the North Dakota Chapter of the American Society of Farm Managers and Rural Appraisers indicated a greater decline, 9 percent, for 2015.”

With respect to the implications of the tightening financial outlook, Reuters writers Tom Polansek and Karl Plume reported this week that, “North Dakota farmer Randy Thompson plans to apply 30 percent less nitrogen fertilizer to his corn this year to save money in the face of crashing crop prices.

“In Minnesota, Andy Pulk is trucking crop nutrients to his farm from 350 miles (563.3 km) away because he found a better price than his local cooperative could offer. He has also halted purchases of machinery.”

The article noted that, “With more acres than ever before likely to be planted with soybeans and corn in the U.S. Midwest this year, companies including seed maker Monsanto Co and fertilizer seller CF Industries Holdings might have expected a windfall for earnings.

“But with grain prices near five-year lows and farm incomes at their lowest levels since 2002, growers are tightening their belts by reducing spending on everything from fertilizer to seeds to chemicals.”

And, Jacob Bunge and Lisa Beilfuss reported today at The Wall Street Journal Online that, “Monsanto said profit tumbled in its latest quarter as the St. Louis-based maker of Roundup weed killer continues to grapple with an unfavorable agricultural market.

“The company is struggling with a sharp downturn in the U.S. farm economy and pressures in overseas markets. U.S. farmers’ incomes are projected to fall to their lowest level since 2002 after grain and oilseed prices sagged for three straight years due to a string of bumper harvests. The strength of the U.S. dollar has meanwhile made Monsanto’s products more expensive overseas.”

The Journal writers pointed out that, “In its latest quarter, Monsanto’s revenue from seeds and genomics, its biggest business, fell 8.6% as sales of most seed types declined. Sales in its agricultural productivity segment slid 30% to $715 million.”

Christopher Doering reported on the front page of the business section in yesterday’s Des Moines Register that, “More food companies are voluntarily disclosing if their products contain genetically modified ingredients, the latest sign that consumer groups may be gaining ground in their campaign to get a nationwide mandatory label.

“In just the past few weeks, candy-maker Mars, General Mills, Kellogg and ConAgra all announced they would be voluntarily labeling their products. They joined Campbell Soup, which became the first major food company to disclose the presence of genetically engineered organisms in January.

“Food executives say they have no choice but to include the ingredients on labels, citing growing pressure from consumers to know what’s in their food, a failure by Congress to adopt a nationwide standard, and the fact that Vermont on July 1 becomes the first state to require labeling.”

Mr. Doering explained that, “Companies that overhaul their label now, rather than wait, not only benefit by earning the trust of their customers, but they can potentially have a larger influence over how future state labels will look, food companies said.”

The Register article added that, “Sen. Chuck Grassley, R-Iowa, said he was not optimistic Congress could reach a deal before Vermont’s law takes effect this summer.”

Secretary of Agriculture Tom Vilsack has also recently expressed his views on the labeling issue, and Politico’s Morning Agriculture indicated today that, “After the failed effort to limit debate on Senate Agriculture Committee Chairman Pat Roberts’ voluntary GMO labeling bill last month, the Kansas Republican and other supporters vowed to try again when they returned from the two-week spring break. Now that they’re back, can middle ground be found to lure enough farm-state Democrats and states’-rights Republicans to vote for the bill? Talks on how to move forward could start this week, especially given that there are fewer than 90 days before Vermont’s mandatory GMO labeling law takes effect.”

Nathan Kauffman, the Assistant Vice President and Omaha Branch Executive at the Federal Reserve Bank of Kansas City, indicated in a recent article (“Mounting Pressure in the U.S. Farm Sector“) that, “U.S. farm income has continued to decline, and is expected to remain low as planting season approaches across the country. The USDA projects real net farm income to be slightly less than a year ago; that projection would mark the second-lowest farm income total in more than 30 years (Chart 1). Prolonged weakness in the farm sector primarily has been driven by several consecutive years of low crop prices and persistently elevated input costs, while recent weakness in the livestock sector also has been a factor.”

Chart 1

The Fed update pointed out that, “The need for financing, and the potential for future financial stress, has continued to increase throughout U.S. farm country. Loan demand in the Tenth District is expected to increase again in the first quarter of 2016, which would be the third consecutive year in which lending needs in the farm sector increased relative to the previous year (Chart 3). Similarly, bankers responding to the fourth quarter survey indicated they expect loan renewals and extensions to continue to accelerate. Conversely, the rate at which loans are repaid at agricultural banks in the District was expected to soften further.

“Persistently strong loan demand at agricultural banks has been coupled with reports of increasing use of USDA Farm Loan Programs through the Farm Service Agency (FSA). From 2013 to 2015, FSA loan volumes increased more than 40 percent (Chart 4).”

Chart 4

The Fed update also noted that, “Despite strong loan demand and an increase in the federal funds target rate in December, interest rates on most farm loans have remained historically low. In fact, interest expenses for U.S. corn producers accounted for only 9 cents per bushel of production in 2014, the latest year for which data are currently available.”

Meanwhile, a recent update by Kevin Patrick, Ryan Kuhns, and Allison Borchers at Choices Online (“Recent Trends in U.S. Farm Income, Wealth, and Financial Health“) stated that, “The continued drop in farm sector income is expected to place downward pressure on farm asset values, which had appreciated during the previous several years. The resulting drop in liquidity from multiple years of lower income is also expected to increase the need for sector borrowing relative to the 2009-2013 period. As a result, the USDA predicts a decline in sector equity and an increase in leverage, which signals the potential building of financial stress within the farm sector. A portion of U.S. farm businesses are highly leveraged and are at increased risk of default. While measures of financial health are worsening relative to the profitable 2009-2013 period, they remain better than historic averages.”

And Rick Barrett reported in yesterday’s Milwaukee Journal Sentinel that, “Carrie Mess, like most dairy farmers, is losing money every time the cows are milked on her farm near Watertown.

“As farmers gear up for spring planting, those who sell crops on the commodities markets stand to lose buckets of money from low prices that are beyond their control.

“Simply put, what many farmers are paid for milk, grain or livestock now isn’t enough to cover their expenses. They’re taking out loans and tapping savings to remain in business, going to work every day knowing that it’s costing them money.”

With respect to other potential impacts of a slumping U.S. ag economy, the AP reported today that, “Kansas farm co-ops are feeling pressure to merge as shrinking farm incomes have producers looking for ways to cut their costs.

“In about six weeks, Farmers Cooperative Elevator in Garden Plain will vote on whether to merge with co-ops in Anthony and Kiowa. Andale Farmers Co-op voted in December to merge with Kanza Co-op, a large operation based in the Pratt County town of Iuka.”

A news release yesterday from the USDA’s National Agricultural Statistics Service (NASS) stated that, “U.S. corn growers expect to plant 93.6 million acres to corn this year, according to the Prospective Plantings report released today by [NASS]. This is the first increase in corn planted acreage since 2012 and, if realized, will be the third largest corn acreage since 1944.

“Driven by the expectations of higher returns in 2016 compared with other crops, corn growers in 41 of the 48 contiguous states expect to either maintain or increase the number of acres they plant to corn. Growers in Illinois, Iowa, Kansas, and North Dakota expect to increase their corn acreage by 400,000 or more acres in 2016.

“In contrast, U.S. soybean growers expect to reverse the recent trends, which saw several record-high years. In 2016, growers expect to plant 82.2 million acres to soybeans, a less than one percent decrease from 2015.”

Jesse Newman reported yesterday at The Wall Street Journal Online that, “Struggling U.S. farmers plan this year to sow their fields with extra corn in a high-stakes gamble to counter sliding prices by selling even more of the grain…Many domestic farmers are grappling with the fallout from three years of declining crop prices and trying to grow their way out of the industry’s slump, even as farm income is expected to drop for a third year, with the forecast $54.8 billion less than half the record in 2013.”

The Journal article noted that, “Corn prices tumbled to a nearly three-month low, dropping 4.2% to $3.51 ½ a bushel.”

Ms. Newman also pointed out that, “The agency’s quarterly report on U.S. grain inventory said corn stockpiles on March 1 totaled 7.81 billion bushels, up from 7.75 billion bushels on the same date last year, and the highest in nearly three decades.”

Christopher Doering reported in today’s Des Moines Register that, “Agriculture remains mired in a stubbornly long period of low commodity prices that has left some producers struggling to cover their costs and forced many to cut back on inputs such as seed and fertilizer to save money. Other farmers have restructured loans or refinanced them against other equity resources so they have enough cash to operate.”

Iowa State University agricultural economist Chad Hart noted yesterday that, “Given trend yields of 168 bushels per acre for corn and 46.7 bushels per acre for soybeans, the projected acreage points to another round of massive crops. Corn production would reach 14.38 billion bushels, which would be another record corn crop. Soybean production would approach 3.8 billion bushels, which would be the 3rd largest soybean crop in history. And for markets already dealing with large supplies, these prospective plantings do not help. So the markets will be looking for Mother Nature to slow the supply train down.”

University of Illinois agricultural economist Darrel Good spoke about the USDA reports in a radio interview yesterday (see box for audio link).

LISTEN – Darrel Good’s USDA March 31 Report Day React https://t.co/dCg0rLaoZs on #SoundCloud

— Todd E. Gleason (@commodityweek) March 31, 2016

And, Dr. Good and Scott Irwin, also of the University of Illinois, held a detailed webinar looking into the yesterday’s USDA reports this morning.

Meanwhile, the Associated Press reported yesterday that, “Inflation-adjusted farm incomes in Minnesota fell to their lowest point in 20 years in 2015 despite record crop yields and this year’s outlook is also grim, according to an annual analysis released Thursday.

“A major factor was the continued decline in commodity prices, the report from the Minnesota State Colleges and Universities system and University of Minnesota Extension said. Unlike 2014, when livestock producers had a very good year, both crop and livestock farms struggled last year.”

Jacob Bunge reported today at The Wall Street Journal Online that, “Environmental groups filed a lawsuit against the U.S. Food and Drug Administration Thursday, challenging the agency’s authority to approve genetically modified [GM] animals used for food.

“The lawsuit is seeking to overturn the FDA’s November approval of a modified salmon that grows twice as fast as wild versions, and block its jurisdiction over a range of new biotech animals under development, such as a fast-growing trout and hornless dairy cows.

“The lawsuit, filed in U.S. District Court for the Northern District of California, accuses the FDA of overstepping its authority in approving the salmon, developed by AquaBounty Technologies Inc., a unit of Intrexon Corp. The fish was the first genetically modified animal cleared for human consumption.”

Mr. Bunge noted that, “The groups said the FDA’s regulation of such technology under the Federal Food, Drug and Cosmetic Act—regulating genetic modification under provisions covering animal drugs—goes beyond the law’s scope.

“‘Congress never intended that law to cover these novel, man-made, genetically engineered animals,’ said George Kimbrell, senior attorney for the Center for Food Safety, which filed the lawsuit along with Friends of the Earth, the Center for Biological Diversity, and other groups.”

The Journal article added that, “The legal challenge is the latest front in an expanding debate over the use of genetically modified organisms, or GMOs, in food production.

“In the U.S., where more than 90% of corn and soybean acres are sown with biotech crops resistant to bugs and herbicides, major food companies are beginning to roll out labels denoting GMO ingredients, in response to a Vermont law set to take effect in July.”